WTO faults Airbus on subsidies but softens blow

BY AUBREY COHEN, SEATTLEPI.COM

Updated 12:46 pm, Wednesday, May 18, 2011

The World Trade Organization's appellate body on Wednesday found that European nations illegally subsidized plane maker Airbus, but rejected several subsidy findings from an earlier decision, including the most-serious.

"I am particularly pleased with this important result," EU Trade Commissioner Karel De Gucht said in a statement. "The U.S. central claim that Airbus received prohibited export subsidies has been dismissed in its entirety. In addition, a number of claims, relating to R&D and infrastructure among others, were either rejected or only partially accepted."

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Airbus Airbus' President and CEO Tom Enders declared victory in a statement released before the WTO officially released the decision.

"This is a big win for Europe," he said. "Congratulations to the EU for managing the case so successfully and winning on all key elements. It is good to see that the WTO has fully green lighted the public-private partnership instruments with France, Germany, Spain and the UK. We now can and will continue this kind of partnership on future development programs."

The biggest victory for Europe was the appellate body's overturning of the initial finding that European "launch aid" loans for the super-jumbo Airbus A380 were "prohibited" export subsidies. Prohibited subsidies are more serious than "actionable" subsidies and require withdrawal within 90 days, rather than six months, before the U.S. can move to impose countermeasures.

The body also reversed findings that subsidies to Airbus cost Boeing sales in Brazil, Mexico, Singapore, and Chinese Taipei, and threatened to do so in India.

And it rejected a U.S. contention that launch aid was an ongoing illegal subsidy program, an argument that could have tied in Airbus' new composite A350 XWB, which was launched after the case started and competes against Boeing's 787 Dreamliner and 777.

But the WTO body upheld findings of other actionable subsidies, including launch aid at below-market terms from France, Germany, Spain and the United Kingdom for the development of the A300, A310, A320, A330/A340, A330-200, A340-500/600 and A380. And it found that subsidies cost Boeing sales where Air Asia, Air Berlin, Czech Airlines, and easyJet bought A320 Family jets, where Iberia, South African Airways and Thai Airways International bought A340s and where Emirates, Qantas and Singapore Airlines bought A380s.

And it upheld the initial panel's recommendation that the European Union "take appropriate steps to remove the adverse effects or ... withdraw the subsidy."

And that's a victory, said Bob Novick, an outside lawyer working for Boeing on the case. "They got (illegal) subsidies for every plane for 40 years, and the appellate body confirmed that without reservation."

Asked if he was disappointed that the appeals body rolled back parts of the decision and rejected U.S. arguments, Novick said: "You never like to give something up that you got."

But the goal was to establish that launch aid was an illegal subsidy and get rid of it, and the appeals ruling "confirms that point 100 percent," he said. "Everything that Boeing cared about was confirmed."

While the ruling didn't provide a subsidy total, it found $15 billion in illegal launch aid and $3 billion in other illegal subsidies, according to Boeing and United States Trade Representative Ron Kirk.

"The WTO Appellate Body has confirmed without a doubt that Airbus received massive subsidies for more than 40 years and that these subsidies have greatly harmed the United States, including causing Boeing to lose sales and market share in key markets throughout the world," Kirk said in a statement, adding: "While it revised the underlying findings for the United States from $20 billion to $18 billion, the message in the Appellate Body report is clear – launch aid is illegal and the European Union and the member states should refrain from future launch aid disbursements."

Boeing General Counsel J. Michael Luttig rebuffed EU and Airbus have calls for a negotiated settlement to the dispute.

"We're not interested in a settlement that would allow a continuation of illegal launch aid — the most pernicious, market-distorting subsidy of all," Luttig said in a statement. "Airbus currently has more than $17 billion of cash on hand. It can well afford to bring itself into compliance with the WTO ruling and thereafter develop airplanes without illegal aid from European governments."

Although the appeals panel didn't find launch aid to be an ongoing program, taking in the A350, it does set a precedent that applies to that program, Novick said. "If you were to give money to the A350 on comparable terms, it too would be found to be illegal."

Ted Austell, Boeing's vice president, Executive/Legislative & Regulatory Affairs said it would be "unconscionable" for European nations to provide promised launch aid to the A350.

Novick said the U.S. government would have to decide how to proceed against launch aid for that program.

The ruling also lays down rules for countries such as Canada, Brazil and China, which are looking to compete against Boeing and Airbus in the market for large commercial aircraft, Austell said. "They will take away from this some very clear guidance."

European officials have noted that the figures Boeing and the U.S. cite for launch aid is the loan total, not the difference between the terms of the loans and market terms. Novick agreed the real subsidy is the difference in these terms.

"I can assure you that the benefit far exceeds the $15 billion in principal," he said. He noted that the U.S. estimated the total value of launch aid subsidies at about $200 billion, while acknowledging that this total might be "higher than it should be. "

In rejecting the earlier finding that the A380 received prohibited export subsidies, the panel applied a stricter standard for such subsidies and said it didn't have evidence that the launch aid met that standard, Novick contended.

"They didn't say they're not. They did say it's a different standard and we can't say they are," he said. "I think we would still be able to meet (the stricter standard) but they didn't have the findings on the record."